Seeds of a turf war: It's pruning time in the lucrative garden centre sector, as the big chain stores sharpen their shears and home in on fat profit margins. Clare Stewart surveys a growth industry

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An insurer has started offering a new kind of policy to householders - covering exclusively garden ornaments and other outside paraphernalia. For a premium of pounds 15 a year, policy-holders can protect their garden gnomes from theft, malicious acts, lightning, explosion, falling trees and wild animals.

Gardening has grown into a big business. The green-fingered are no longer limiting themselves to buying just a handful of bulbs and a bag of compost once a year. They want conservatories and strimmers, barbecues and garden books, pet products and 'Pick your own' - and now gnome insurance. They now spend an estimated pounds 2.6bn a year on their hobby. The main beneficiaries have been garden centres.

But their highly profitable world is no longer as comfortable as it was. The big DIY chains have spotted the hefty margins in garden products and are moving in on an industry once the exclusive preserve of family firms or small regional chains.

Customers are no longer content with plant shops. They want entertainment for their children; they want a cafe for granny. In the argot of the retail industry, they want 'destination shopping' - Alton Towers writ small, offering everything from train rides for the children to Olde Worlde tea shoppes. For smaller operators, the size of investment required can be horrendous.

And today Sunday trading restrictions, which left garden centres untouched, are finally relaxed, allowing other parts of the high street to compete more seriously on Sundays for disposable incomes. Adding insult to injury, the new regime means larger garden centres (with floor space of more than 3,000 sq ft) will have to reduce their Sunday shopping hours to six.

Interest in gardening has spread rapidly across the age range. The industry is fertilised by encouraging demographics and statistics: the largest market, the 35-65 age group, is the fastest growing; 85 per cent of adults have gardens; between 2 million and 4 million watch Gardeners' World on BBC 2 every week; and the world's biggest flower show, at Hampton Court last month, attracted a record 180,000 visitors.

Moreover, garden retailing has weathered recession better than many other sectors. Fewer people may have been moving house, but the property slump has not stopped the rest improving the houses and gardens they cannot sell.

Over the past five years the garden products market is estimated to have grown by 25-30 per cent in real terms. The market research group Mintel reckons there are around 2,400 garden centres, including those attached to big players in the DIY market, such as B&Q (owned by the Kingfisher retail group), Texas Homecare (part of Ladbroke) and Homebase (Sainsbury).

Others, such as Verdict, put the number at 3,000 or above, counting specialist nurseries and such retailers as Woolworth, which sell seeds, plants and flowers.

Even though garden centres have been around since the Sixties and that the sector has been one of the fastest growing retail markets, there are surprisingly few groups of any size. Excluding the DIY sheds, there are only around a dozen chains among the specialist garden centres.

Wyevale, with 43 centres, is the largest by far and the only group quoted on the stock market since it swallowed up rival Cramphorn in 1991. Wyevale is forecast to run up pre-tax profits of nearly pounds 6m in 1994, on turnover of pounds 41m.

On Friday it paid pounds 1.7m for two garden centres, one in Keynsham, Bristol, and the other at West Drayton in Middlesex. The Challis Garden Centre in York cost it pounds 1.22m last November, when it raised pounds 10.9m through a rights issue to finance further acquisitions. 'We can act quickly,' says Brian Evans, chief executive.

Country Gardens, a company financed under the Business Expansion Scheme, has 22 sites and after a bumpy start because of the recession is now profitable.

There have been attempts at rapid expansion among newer entrants in the market. Gardenstore, set up in 1988 by two former Woolworth executives, linked up with Texas to run garden centres at a number of its sites. The group fell foul of recession and went bust in 1992, though Texas retains the Gardenstore brand.

More typically the industry is characterised by single-site centres, often family-owned, that have developed from long-established nurseries, and moved from wholesaling into retailing to take advantage of better profit margins.

A number have become large, profitable businesses that often outperform the chains. Further development is hampered by their fierce commitment to independence and the daunting cost of expansion.

Estimates for market growth are looking rosy - Verdict predicts a sales rise of 41 per cent over the next five years - but a shakeout is looming.

'Since the recession and the heavy discounting by the DIY sheds, pricing has become very competitive,' says Wyevale's Mr Evans. 'No inflation in prices and deflation on some products, such as garden tools and composts, means we are having to sell a lot more volume to get our sums right.'

The era of mushrooming new centres is over, and the existing players are starting to carve up the cake differently. 'We're beginning to see a rationalisation,' says Christopher Roberts, chairman of the Garden Centres Association, and a director of a successful independent, the Van Hage Garden Company in Great Amwell, Hertfordshire.

Other retailers, says Mr Roberts, 'are now looking harder at the gardening market' as a growth opportunity. Entry costs are reckoned to be around pounds 1m to build a new garden centre, and with planning authorities now taking a much tougher line on this type of out-of-town development, would-be garden centre magnates are going to have to choose among existing operations.

Changes already under way in the DIY sector are affecting the garden retail market. Since 1980 the number of DIY superstores, most of which include a garden centre, has increased sixfold to more than 1,050. They have carved out between a quarter and a third of the market. They are particularly big sellers of garden composts, chemicals, furniture and tools, rather than plants, which require specialist knowledge.

Margins have been squeezed by heavy discounting across the sector. And with DIY store numbers reckoned to be near saturation point, the chains are taking a long hard look at their product offer.

B&Q is the biggest garden chain, with 256 centres in 280 stores. It is intent on rolling out its big new Warehouse outlets, offering more products at lower prices.

It is also attempting to improve the advice its staff can offer customers. 'We're planning a most intensive programme of staff training on customer service and gardening knowledge,' says Michele Jobling, B&Q's controller for garden centres.

Texas Homecare has 85 Gardenstore centres among its 240 sites. 'Gardening is of growing importance to us,' says Sue Hope, buying and merchandising director, 'and we are rolling out the Gardenstore concept across the group.'

Gardening sales make up about 10 per cent of turnover overall. While Texas DIY sales have been dented by discounting, the price wars have had less of an impact on gardening products, which are seen as relatively less price-sensitive.

Sainsbury's Homebase, although claiming a smaller share of the DIY market - 3.6 per cent against B&Q's 15 per cent - has always had a stronger stake in the gardening and houseplant market. It has 81 stores and plans a further 45 over the next three years.

'Around one-quarter of our business is generated by garden centre sales,' says Simon Wharton, Head of Horticulture and Seasonal Buying. 'We are redoubling our efforts because we see the opportunities for growth in gardening are very good. We see gardening as the biggest difference between us and our DIY competitors.'

Specialist garden centres are mixed in their response to the DIY groups. 'They blow hot and cold about garden retailing,' says Nicholas Marshall, managing director of Country Gardens.

'They use gardening as a promotion to get people into their shops, but I think there is a culture clash between DIY retailing and garden product retailing.' In addition, gardening products are often bulky and produce lower sales per square foot than DIY items.

Many garden centres acknowledge, however, that it is harder to compete with DIY groups on price for a limited range of products.

Competition from superstores, as well as the larger chains, such as Wyevale and Country Gardens, has prompted the formation of buying and marketing groups to give independent retailers collective muscle. 'It is a sign of centres under greater stress,' says Brian Evans at Wyevale.

But smaller centres are un likely to go too far down the pile 'em high, sell 'em cheap route with the likes of growing-bags and fertiliser, when plants sales have remained resilient through the recessionand still account for around half the average garden centre's sales.

'People are becoming more knowledgeable about gardening,' says Michael Cole, managing director of garden centres at Notcutts, the third largest chain, with a headquarters in Woodbridge, Suffolk.

''They go to garden centres when they want specialist advice and a wider range of plants - that is where centres score.' In addition, says Mr Cole, garden centres offer a more attractive environment, particularly for 'the more mature enthusiast'.

Plant sales, particularly for groups such as Notcutts and Hillier Nurseries, both significant growers as well as retailers, are important because of the high margins they offer.

Indeed, some larger nurseries, such as Blooms of Bressingham, have resisted the trend to develop garden centres, opting instead to carve out a niche as plant centres alone. Blooms, which has a pounds 5m turnover, runs three plant centres and a mail-order service, and supplies garden centre customers as a plant wholesaler.

But plants, despite their attractive profit margins, are labour-intensive. They have a higher mortality rate than patio chairs. And they are vulnerable to the greatest variable in garden retailing - the weather.

This year and last, for example, a wet spring dampened sales at the beginning of the season, as people put off planting for the summer. By the same token, hot weather boosts sales of barbecues and garden furniture, not rose bushes.

In some areas, bad weather has had more of an impact than the recession. Dobbie & Co is Scotland's largest chain with six centres, and, says its managing director, James Barnes, the group is 'more seasonally dependent than economically dependent', given that the planting season is shorter and that recession has hit its trading area less severely than elsewhere.

Garden centres have responded to the challenge of bad weather and the seasonal nature of trade by diversifying into different product areas.

The sale of Christmas decorations is now an essential contributor to annual turnover in most of the larger garden centres. 'Outdoor living' is another lucrative area, covering everything from patio furniture to barbecue sets.

Garden centres make much of their family appeal. Pet shops are common additions, and a number of larger sites have gone in for full- blown attractions.

At one Dobbie site, for example, the Edinburgh Butterfly and Insect World draws 80,000 visitors annually. The Van Hage Garden Company has a railway and miniature farm on site.

Secrett's, in Surrey, is another prime example of a family-owned commercial grower that has diversified successfully into retailing.

Since opening a garden centre in the 1970s, Secrett's has added a farm shop, pick-your-own business, delicatessen, flower shop and vineyard. It has also recently made a substantial investment in state-of-the-art glasshouses, to grow a wide range of cut flowers. Tours round the two- acre glasshouses are an added draw.

Not all of the add-ons are run by the garden centres themselves. Country Gardens, for example, has a wide range of concessions located at its 22 sites, selling products ranging from lawnmowers to antiques and fishing tackle. This, says its managing director, Nicholas Marshall, allows Country Gardens to concentrate on its core business of selling plants.

Country Gardens is a new business, and recession hit just as it was building up its centres. The group has had to cut costs and improve its purchasing terms to offer lower prices. 'Price is the key as long as quality does not drop,' Mr Marshall says.

In the wake of recession and with worries about tax increases and interest rates putting a brake on consumer confidence, price is likely to be an increasingly vital issue for garden centre retailers.

In the longer term, the pace of change in the garden retail market among the specialists is set to accelerate once the effects of a stronger housing market are felt. Market analysts expect such groups as Wyevale to step up their acquisition of existing centres, reaping the benefits of increased buying powers and higher profit margins.

'The strong are getting stronger, while the weak will be under pressure,' says Christopher Roberts, the GCA chairman.

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